Wates Corporate Governance Principles for large private companies – seven years on

Since their introduction in 2018, there are now over 500 of the UK largest privately-owned businesses – with a combined annual turnover of more than £850 billion – that voluntarily apply the Wates Principles.

This session was chaired by Ilaria Lavalle Miller from the Corporate Governance Policy Group at Accountancy Europe. She was joined by Peter Swabey, from the Chartered Governance Institute and Mark Babington, from the Financial Reporting Council (FRC).

Setting the scene: background and rationale

Large private companies employ millions, operate across key sectors and yet historically have faced significantly few governance expectations: while listed companies are required to report against the UK Corporate Governance Code, no equivalent measures existed for large privately owned businesses.

The imbalance became more evident following high-profile corporate failures, it prompted a renewed recognition that limited liability is a privilege, and in exchange companies owe a degree of accountability and responsible conduct to wider society. The annual report could no longer be targeted solely at shareholders, but to a broader set of stakeholders with an interest in understanding how companies are run.

The UK Government’s 2016 corporate governance reform agenda aimed at addressing the transparency and governance gap.

The Companies (Miscellaneous Reporting) Regulations 2018 introduced a mandatory requirement, which brought into scope around 2,000 of the UK largest private companies, to publish a statement in the Directors’ Report explaining their corporate governance arrangements, including if and how they applied any code.

The Financial Reporting Council (FRC), working with a multi-stakeholder coalition group, chaired by James Wates, developed a new set of Principles, flexible and principles-based, designed to accommodate the variety of private ownership structures, including family-owned businesses and private equity-backed firms.

The six principles and ‘apply and explain’

Adoption of the framework is voluntary – so companies in scope could adopt a different code, such as the Corporate Governance Code, or none at all – but doing so can help greatly enhance a private company’s credibility in the market, particularly useful if applying for listing in the future is on the cards.

The Principles are structured around six core areas: purpose and leadership, board composition, director responsibilities, opportunity and risk, remuneration, and stakeholder relationships and engagement.

A defining feature is the “apply and explain” approach. Rather than requiring strict compliance, companies are expected to apply the principles in ways that suit their circumstances and explain how their governance approach supports long-term success. This flexibility has been key to the framework’s adoption across diverse organisations and was emphasised as being a key strength of the framework by panellists.

Improving governance reporting

The Wates Principles aim to enhance the quality of governance reporting. The framework encourages organisations to go beyond minimal disclosure and offer clear, meaningful explanations of how governance supports strategy and sustainability.

Panellists stressed that effective reporting should present a coherent narrative linking purpose, leadership and decision-making. This approach recognises that governance is not just about introducing structures and policies, but how they operate coherently in practice.

Adoption and practical impact

Since their introduction, the FRC has published three analysis/reports on the Principles, in order to evaluate adoption and impact. Seven years on, the Wates Principles are the most widely adopted corporate governance code amongst private companies. Many companies use them not only for external reporting, but also to guide internal governance discussions. Even organisations with well-established frameworks benefit from using the principles to review and refine their practices.

The FRC’s analysis show a significant improvement in companies’ reporting on risk and opportunities, with disclosures becoming increasingly more insightful.

Challenges in application

Despite progress, challenges remain. One common difficulty is clearly articulating organisational purpose and demonstrating how it informs strategic decisions. While most companies have mission statements, translating them into meaningful governance narratives can be complex.

Explaining board composition is another challenge. Companies must demonstrate not only appropriate board independence but also diversity of skills, experience and perspectives. Similarly, remuneration disclosures can be sensitive, as private companies may wish to protect commercially confidential information. Panellists explained that the principles emphasise that the focus should be on demonstrating alignment with long-term success rather than disclosing detailed figures.

Expanding stakeholder focus

The Wates Principles reflect the changed approach to corporate accountability. While directors’ fiduciary duty continues to be owed to the company, for the benefit of its shareholders, directors are required, in making decisions and running the company, to also ‘have regard’ to a number of other factors, including employees, customers, suppliers, communities and the environment (in line with s172 of the Companies Act 2006). Stakeholder engagement has become more prominent as expectations of corporate responsibility grow. Organisations that demonstrate meaningful engagement are better positioned to build trust, manage risks and support sustainable success.

Governance and societal impact

Discussion during the session highlighted a broader shift in governance thinking. There is growing debate about whether governance expectations should be based on a company’s societal impact rather than its objective ownership structure or size. Many large private companies have influence comparable to major listed corporations, employing large workforces and providing essential services (eg, supermarkets). The Wates Principles represent a step towards aligning governance expectations with this reality, promoting transparency without imposing excessive regulation.

Future developments

Looking ahead, the focus is likely to be on improving the clarity and usefulness of governance reporting. Stakeholders are less interested in lengthy disclosures and more focused on understanding how boards make decisions and manage risks.

Improving the quality of explanations will be more important than increasing the quantity of information. Technology may also support more accessible and dynamic reporting formats, although the core objective remains unchanged: helping stakeholders understand governance practices and director responsibilities to help inform their effective decision-making.

Conclusion

The Wates Principles were designed to reflect the diversity of the UK private company sector. By focusing on principles rather than rigid rules, they allow organisations to develop governance arrangements suited to their unique circumstances while maintaining transparency and accountability.

Seven years on, the framework appears to be achieving its goals. It has encouraged more thoughtful governance, improved reporting and strengthened transparency without imposing unnecessary bureaucracy. As expectations around corporate accountability continue to evolve, the Wates Principles are likely to remain an important part of the UK governance landscape.